Good morning, and welcome to the Builders FirstSource Fourth Quarter and Fiscal Year 2011 Earnings Conference Call. Your host for today's call is Mr. Floyd Sherman, Chief Executive Officer. [Operator Instructions] Any reproduction of this call in whole or in part is not permitted without prior written authorization of Builders FirstSource. As a reminder, this conference call is being recorded today, February 17, 2012. The company issued a press release after the market closed yesterday. If you don't have a copy, you can find it on our website at bldr.com. Before we begin, I would like to remind you that during the course of this conference call, management may make statements concerning the company's future prospects, financial results, business strategies and industry trends. Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties, which could cause actual results to differ materially from expectations. Please refer to our most recent form 10-K filed with the Securities and Exchange Commission and other reports filed with the SEC for more information on those risks. The company undertakes no obligation to publicly update or revise any forward-looking statements. We have provided reconciliations of non-GAAP financial measures to their GAAP equivalents in our earnings press release and detailed explanation of non-GAAP financial measures in our form 8-K filed yesterday, both of which are available on our website. At this time, I'd like to turn the conference over to Mr. Floyd Sherman. Please go ahead.

Thank you, and good morning. Welcome to our fourth quarter and fiscal year 2011 earnings call. Joining me from our management team today is Chad Crow, Senior VP and Chief Financial Officer. And I'll start with a recap of the fourth quarter and fiscal year, and then I'll turn the call over to Chad, who will discuss our financial results in more detail. After my closing comments regarding our outlook, we'll take your questions. Our sales for the fourth quarter of 2011 were $192.7 million, up 31% from sales of $147.1 million in the fourth quarter of 2010. We accomplished this substantial sales increase despite actual U.S. single-family starts increasing only 4.7%, the average number of U.S. single-family units under construction decreasing 10.7% and average commodity prices being relatively flat during the quarter. Our adjusted EBITDA for the quarter was a loss of $3.3 million compared to a loss of $12.5 million in the fourth quarter of 2010. For fiscal year 2011, we ended the year with sales of $779.1 million, up 11.2% over 2010 sales of $700.3 million and improved our adjusted EBITDA by $28.6 million to a loss of $15 million. Our financial results improved in spite of an 8.6% decline in U.S. single-family starts, a 14.1% decline in U.S. single-family units under construction and commodity deflation of approximately 6% for the year. We continue to open a significant number of new accounts and increase our sales with the national builders. In addition, our improved liquidity made possible by our new term loan enabled us to take advantage of opportunistic inventory buys towards the end of the year. Our strong inventory position at year end should allow us to cover our customer requirements in the first quarter of 2012 and also give our sales force the flexibility to continue to pursue new sales opportunities. Single-family housing starts in 2011 were the lowest since the downturn began in 2006. I am extremely proud that despite this fact, we were able to dramatically grow our market share and make such sizable improvements to our financial results. I'll now turn the call over to Chad, who will review our financial results in more detail. M. Crow: Thank you, Floyd. Good morning, everyone. For the current quarter, we reported sales of $192.7 million compared to $147.1 million for the fourth quarter of 2010, an increase of $45.6 million or 31%. We estimate sales increased approximately 29% due to volume and 2% due to price. Breaking down our sales by product category: Prefabricated Components were $35.6 million, up approximately 37% when compared to $26 million in the fourth quarter of 2010; Windows & Doors increased 28.3% to $47.2 million; Lumber & Lumber Sheet Goods were $54.2 million, an increase of $13.4 million or approximately 33%; our Millwork category increased $3.5 million to $20.2 million; and our Other Building Products & Services increased 32.5% to $35.5 million. From the sales mix perspective, we saw no significant changes among our product categories. Our gross margin percentage was 20.4%, up from 19.1% for the fourth quarter of last year. The 1.3 percentage point improvement is primarily attributable to increased sales volumes and our ability to leverage fixed cost within cost of goods sold. Our selling, general and administrative expenses were $47.1 million, up only $1.5 million or 3.2% from the same quarter last year despite a 31% increase in sales. As a percentage of sales, however, SG&A expense decreased to 24.4% in the current quarter from 31% in the same quarter last year. For the fourth quarter of 2011, our salaries and benefits expense, excluding stock comp expense, was $27.1 million or 14.1% of sales compared to $26.1 million or 17.7% of sales in the fourth quarter of 2010. Delivery expense increased $600,000 or 7.4% for the current quarter as a result of increased sales volume. Interest expense was $8.1 million in the current quarter, an increase of $1.2 million from the fourth quarter of 2010, primarily due to the issuance of our new term loan in December of 2011. We recorded $300,000 of income tax expense in the fourth quarter of 2011 compared to a $100,000 income tax benefit in the fourth quarter of 2010. We recorded an after-tax non-cash valuation allowance of $6.5 million and $9.4 million in the fourth quarters of 2011 and 2010, respectively, related to our net deferred tax asset. Absent the valuation allowance, our tax benefit rate would have been 38% and 38.9% in the fourth quarters of 2011 and 2010, respectively. Loss from continuing operations was $16.6 million or $0.18 per diluted share compared to a loss of $24.5 million or $0.26 per diluted share in the same quarter last year. Excluding the valuation allowance, facility closure cost and debt issue cost write-offs, our loss from continuing operations was $0.10 per diluted share for the current quarter compared to a loss of $0.15 per diluted share in the fourth quarter of 2010. Our net loss for the fourth quarter of 2011 was $16.7 million or $0.18 per diluted share compared to a loss of $24.6 million or $0.26 per diluted share in the fourth quarter of last year. Adjusted EBITDA was a loss of $3.3 million, a $9.2 million improvement when compared to a loss of $12.5 million in the same quarter last year. Given our strong sales performance during the quarter combined with the inventory buys Floyd previously mentioned, we did not see the anticipated reduction in working capital and, in fact, saw working capital increase during the quarter by approximately $8 million. However, our components of working capital remained healthy for the quarter as our accounts receivable days were 35.3 days compared to 36.2 days in the fourth quarter of 2010. Inventory turns were 8.7 turns compared to 7.9 turns, and our accounts payable days were just below 30 days. Our cash usage for the current quarter was approximately $20.6 million excluding the net effects of the recently completed term loan and letter of credit facility and the payoff of our previous credit facility and the remaining 2012 notes. Of this $20.6 million of cash used, $8 million was attributable to increased working capital needs, the result of our increased sales and $2.1 million related to capital expenditures. The remaining $10.5 million was used to fund operating losses and cash interest expense for the quarter and represents an $8.8 million improvement over the $19.3 million used to fund operating losses and cash interest in the fourth quarter of 2010. On December 2, 2011, we completed a new $160 million first-lien term loan financial agreement and entered into a standalone letter of credit facility, which provides for the issuance of up to $20 million of letters of credit. The term loan and letter of credit facility both mature on September 30, 2015. In conjunction with this transaction, we repaid the $20 million outstanding under our 2007 senior secured revolving credit facility and terminated the facility. We ended the year with cash of $146.8 million and net liquidity of $111.8 million after giving effect of the $35 million minimum cash requirement contained in our new term loan agreement. In addition to the $146 million -- $146.8 million of cash, we also had $15.1 million in restricted cash at December 31, 2011, of which $1.9 million was included in long-term assets. Restricted cash consists of $14.2 million we used from the proceeds of the term loan to collateralize letters of credit outstanding under the new letter of credit facility and $900,000 provided as collateral for other casualty insurance obligations. I'll now turn the call back over to Floyd for his closing comments.

Thank you, Chad. Though 2011 presented us with the fewest number of U.S. single-family housing starts since the downturn began, we significantly improved our results through the continued execution of our strategy, which focuses on pricing discipline, cost containment, preserving liquidity and providing superior customer service. I believe that through the dedication and sacrifices of our employees, we have positioned Builders FirstSource to outperform the competition and take full advantage of the expected housing recovery in our markets. I'm truly excited about the future of our company, and I'm ever grateful for our employees, customers and vendors that have partnered with us during these trying times. I'll now turn the call over to the operator for Q&A.

[Operator Instructions] Now we'll go to Philip Volpicelli from Deutsche Bank.

With regard to the term loan that you issued, I understand it was $160 million and you issued at $0.97 on the $1, so that gives you about $155 million, but the net proceeds to you were only about $119.6 million. I was wondering, was the remainder fees that were paid to the underwriters or paid to the lender? M. Crow: Well, we had $14 million we had to use to back the LCs. I'm not sure if you took that into account.

Okay, so that... M. Crow: And there were -- there was a -- there were some fees involved, but I think the biggest difference there is the cash collateral.

So the remainder between the $14 million and the number I quoted would be fees? M. Crow: That's correct.

Okay. And then, clearly we've seen an improvement in multi-family starts to begin the year here, and single-family seems to be kind of treading water. I know you, in the past, have talked a little bit about how much benefit you get from multi-family versus single-family. Can you remind us of those -- what the discount is for a multi-family start being a smaller unit versus a single-family in terms of [indiscernible]?

Typically in square footage, your average multi-family unit probably runs somewhere in the neighborhood of 750 square feet per unit. The single-family home is somewhere around 2,200 and -- I think this past year, 2,258 square feet. The multi-family unit, obviously, is a lower dollar value per unit. It is holding consistent in the mix of our company. So we are continuing to increase our multi-family light commercial sales on the same pace as we go our -- the single-family side of the business. I would have to remind you, and we have this come up quite often, while the starts and permit data are definitely increasing and we're very, very optimistic that that will soon begin reflecting itself in units under construction, to date, we have not really seen a major movement from starts into units under construction and then on to completions. For us, a start or permit is nothing more than a precursor of what the future building activity has in store for us. And so the -- while everything is looking very good from the starts and permit basis, we are hopeful that we will soon begin seeing it flow into the homes under construction side of the business.

And, Floyd, what is that lag from the start, which is building the foundation nerve or preparing the land to actually erecting the wooden skeleton which would help you guys?

Well typically, once you've got to start and you finished your dirt work and you've got your footing [ph] then or the basement in, the construction proceeded very quickly, typically within 30 days. Now we're seeing a much longer lag period, somewhere in the 4- to 6-month period. A lot of this has to do with the fact that the builders are very reluctant to start the construction process on a house until they feel the buyer is going to be able to complete the financial contract. The process of getting a mortgage approved, getting the appraisals on the house worked out is a very, very difficult process. It probably -- in my estimation, it's affecting the actual housing construction portion of the industry more than anything else. The builders continually -- you will hear them saying that the mortgage process is extremely difficult, extremely slow, and the appraisal issues are really keeping the pricing down for the builder. Very, very tough environment out there.

Understood. My last question. Chad, can we just walk through the I guess hurdles to free cash flow positive. So if I do my math correctly, interest expense should be somewhere around $36 million, $37 million. And then what are you guys expecting for capital expenditures for 2012? M. Crow: Probably about $8 million.

$8 million. So if I just add those 2 numbers, am I in the right ballpark? M. Crow: Yes.

And we'll now go to Seth Yeager from Jefferies & Company.

Are you starting to see gross margins come back in that prefab division? I know that was one of the hardest hit from the downturn. Is that something that's starting to come back a little bit and is some of the competition starting to drop out of the market? Are you getting guys that are slowly coming in with things picking up a little bit?

Yes, we're seeing improvement in the margins on that side of the business. Still not anything where it needs to be. We're still fighting the issues of what I will say is low-cost labor on the job sites giving the builders an alternative in many cases to where they can use conventional stick framing versus components. The time is really not of the essence the way it has been in the past that really plays into the advantage that components -- one of the major advantages that components have to offer. The -- I think as the housing recovery keeps taking place and as we see the improvement in the housing environment, I think that we will start seeing the margins moving up to a more acceptable rate than what we have right now. And the timing again will become a very important part of the -- or consideration for the builder.

Okay. So until we start to see -- and that's helpful. Until we start to see turnarounds closer to that 1 to 2 months where guys are starting to build, you're probably not going to see much -- a heck of a lot of expansion in margins there. Is that sort of safe to say -- until that cycles in?

Even this year on an overall basis, I think even with the worst year in housing starts, we were able to substantially increase our margins. So we've overcome even a declining construction level and our people are working really hard out in the field to improve our margins. We're getting good product mix, or the product mix, as Chad said earlier, has stayed very consistent, and we continue to really sell hard on our value proposition, which I think we offer a better value proposition to our customers than any competitors that's out there. And I think the builders are recognizing that and giving us a very slight improvement. But it continues to get better all the time. So I'm very, very pleased with the progress that we're making in improving and bringing our margins up in spite of still a very, very tough pricing environment.

I mean just looking back I think over the last, I don't know, 6 or 7 quarters, you guys have had pretty nice gross margin improvement, and it looks like your inventories are positioned to an area where you may benefit from some price increases here in January. I mean, what's the -- you guys have been pretty consistent above 20% over the last 3 quarters. I mean is that a decent baseline at this point? Do you think you could get back to maybe 21%? I guess, what's the target internally there? M. Crow: Looking out further than just this year, we hope to get well above the 21% level. But I think 21% is probably a pretty good goal for this year.

Okay, yes. I was just talking to this year.

And, Seth, I -- just to give you a little bit of magnitude of the improvement that we have seen in the component side, on a quarter-over-quarter comparison, fourth quarter of '11 to '10, our margins were up almost 390 basis points. So that's pretty -- now I will also say some of that is coming because we're getting better absorption. There's a lot of fixed costs in the component operations, and so we're getting better absorption. We also had better operating efficiencies, and we've gotten better pricing. And so I think it's a combination of all those factors. But nevertheless, it's improvement. Nowhere near where it has to be, but we keep moving the bar up.

Yes. Last question, if I can. You showed some pretty nice leverage to this quarter. I guess what sort of revenue level would you have to see before you'd have to start bringing on some more guys, or more shifts or what have you? And where are some of those cuts that you guys made over the last few years would start to slowly filter back in? Is there a decent, I guess, baseline that we should look for before this cost would start to come back?

They will slowly -- we obviously -- because some of the numbers are certainly variable, we are slowly increasing our FTE count. It is staying -- we are still getting good absorption. So it's going to be a continual process, but the -- probably we will have reached the point to where it's almost going to be then close to a completely variable what, Chad, and probably another $200 million in sales? M. Crow: Yes. At somewhere around the $1 billion mark, I would think.

And we'll now go to Brad Bryan from Imperial Capital.

I guess I had 2 questions. First, to start out, can you just give a little discussion about the competitive dynamics, and how you're able to achieve a 29% volume gain in the fourth quarter?

Yes, I would love to do that. I think we are outperforming our competitors. I think that we have made some very, very strategic inventory buy strategy decisions. I think that we have the -- certainly, the best and most aggressive people out in our operations, taking our value proposition to the customer. I think the -- we are flat outperforming our competition in every area. We have the liquidity to make sure that we can support our market needs and the expanding needs of the market. I think that we have the quality of people. We've had the consistency of direction. I think that we have a very, very focused group of -- on our -- the objectives that we're trying to achieve in the company and a very high level of support from our people in field operations. I think we are extremely well positioned with the national builders. I think the national builders are viewing us as a survivor in this industry. We definitely have demonstrated our ability to continue our operations and continue supporting our operations and with the liquidity that's necessary to survive going into the future. The -- I think the builders are recognizing that we bring to them a better package all the way from our ability to supply individual materials to the job site, as well as a full install package. And I think that we cover the gamut of all of his needs, and we run his job site better than any of the competitors. And I think for all of those reasons, we are just flat killing and outperforming our competition. And as you know, I don't want to be bashful about saying it because our people really deserve the credit and the recognition that they're now starting to get. And I think that the -- we see this continuing right on into this year. We -- I feel very good about our start on 2012. That's all I can say.

Okay. Can you talk a little bit about sort of how you view the marketplace, what your assumptions are for 2012 in terms of single-family housing starts and et cetera?

Yes. The -- I don't -- I guess the single-family -- pick your number somewhere between 450,000 and maybe as high as 500,000 single-family starts. But very honestly, we are not hung up and that's one of the things that this year we said in the company. We don't care where the housing starts are. We're going to find a way to hit a certain volume level, and we're going to figure out what it's going to take to do it irregardless of where -- what the housing start numbers are. And our people are doing just that. And I'm hopeful that we're on the high end of the housing range. And if so we're going to beat what we're forecasting our internal budgets are for the 2012. I think that single-family U.S. is going to be somewhere in the 450,000 to 500,000. The NAHB is saying it's somewhere around 478,000. Still a lousy year by anybody's measure, but hell of a lot better than what we saw in 2011. So that's the best I can do for you in that regard.

Okay. In the past, your company has provided guidance in terms of cash burn expectations for the year and where you expect to end the year with liquidity. Can you provide a similar sort of update for 2012? M. Crow: Well, we've already covered cash interest will probably be around $37 million and CapEx around $8 million. So that gets you to $45 million. Our goal this year is to be north of break-even EBITDA. And so beyond that, it's going to depend on working capital, and that's all dependent on our increase in sales volume.

And we'll now go to Phillip Wirtz from Odeon Capital Group.

Just a quick couple here. First off, given your new term loan facility, so that new cash interest burden, and then also the fact that you've been very aggressive about gaining revenue per housing starts so to speak. Can you give us any sense just roughly of where kind of free cash flow break-even would be now? It seems like you've gotten a lot better on capturing your revenue from any given level of the start. So would that number be something like 750 where you could be free cash flow break-even? M. Crow: That's probably in the ballpark.

Okay. And then the other one. Just kind of getting back to the outlook for 2012. I just -- I can't help but recall in 2011, as we were looking forward. Of course, we were more optimistic about housing starts than what they turned out to be, but can you contrast or compare the 2 years? How does things kind of look and feel now compared to where they looked and felt this time last year and give us any sense of the differences?

Yes. The optimism is much higher right now than it was in the third and fourth quarters of last year. As you recall, 2010, the first half of the year was very heavily influenced by the various programs that were put in place in hopes of stimulating housing, and it did for a very short period of time then fell off. The optimism, I think, has continued to improve in the home building community. As you move through the fourth quarter, it certainly seems to be a lot more positive even in the start of 2012. We have had good weather, which has helped with the enthusiasm or optimism that's out there. But nobody is saying that they see a return to normalcy anywhere close yet in this business. People are still feeling it as still 1.5 years, maybe 2 years away. But there are definitely positive signs. Starts and permits, which are really a precursor to future activity, and certainly those numbers are much more encouraging at this point than they were a year ago. And I think that will soon begin flowing its way through units under construction and then completions. It is still very, very tough out there on getting mortgages approved, appraisals that are more in line with the values that the builders are providing to their customer. There's still a lot of overhang that's got to be worked through. All of these things are still dampening the housing recovery. But right now, I think a much better feeling, and I think the activity will soon be coming forward.

And we'll now go to Rob Hansen from Deutsche Bank.

I just wanted to see if you could comment on some of the conditions post the quarter end. I apologize if you mentioned this earlier, but it seems like the builders have mentioned sales in January were up significantly, and it feels like February has started off on the right foot as well. So have you guys seen that in your business? M. Crow: We really can't say a whole lot about the first quarter. Floyd already mentioned that we're very pleased with how the year has started out. I think we'll just leave it at that. But there's certainly a lot of optimism right now within our company, and we think we've got a lot of good momentum.

And I will say -- and we are still gaining market share. And I'm happy with our market share gains that we're getting.

Okay. And then I just also wanted to see if -- you mentioned that you guys have been strategically buying inventory. This is obviously the right decision to be able to help your customers. Is this some strategy that you're going to pursue throughout the rest of the year or do you think this is more of kind of a temporary -- take advantage of the situation?

Probably, we definitely -- in the future if we see that we can take advantage of a situation, we're going to do so. The commodity markets are one that you have to continually watch, and our people are very, very good at looking at trends and observing what's going on in the commodity markets. It's supported very much by our people in the field and their contacts that provide them information that gives us insights into the markets. And then, we make some very timely buys. We're going to do and continue doing what we feel is necessary to support our bottom line, as well as being able to support our customers with the most competitive cost position that they can be provided with. And so there are times that we can just ride the inventories on a normal replenishment basis, and there are going to be times that we have -- that we will step in and ensure that we have complete quarter coverages. And so I really can't say, going forward. It's just going to continue to be a mixed bag.

Okay. And then just one last question here. You mentioned that you had some positive leverage within fixed costs and COGS. And I just wanted to see if you could give a little I guess, a little more break down in terms of the numbers. What percentage of costs in COGS are going to be fixed? M. Crow: That's around 5% to 10%.

And we'll now go to Philip Volpicelli from Deutsche Bank.

Just a couple of follow-ups. Many of the manufacturers of building materials have been trying to increase prices as we move into 2012. Can you give us some color as to whether or not they're sticking, specifically wallboard, roofing and then lumber?

We do very little in the way of wallboard, and so I can't say on a national average the -- but, yes, we have seen the wallboard increases. And as far as we're concerned, they appear -- the prices that have been put in place appear to be sticking. Roofing, there's been a lot of discussions, and we've seen some limited increases in some areas and some delays in putting other increases into place. But that -- I suspect the roofing increases are going to stick, and especially with the petroleum-based products. On Lumber and Lumber Sheet Goods, that's a roller coaster. And the producers have been awash in red ink. It's no fun to be operating at that level. And they're doing their best to try to get the pricing up. The demand just hasn't been there to support it. They've cut back probably as much as they possibly can. They've also taken short shifts and downtimes and so forth trying to hold the market up. And certainly, a higher price would be beneficial to us, as we've said in the past. But they -- it's been tough up to this point to make it stick. I suspect, though, as the construction activity keeps increasing, especially with the mills, I think, now operating very close to capacity, we're going to see a long-term increasing of price on the commodity side of the business. And we're going to have to make sure that we can stay ahead of it so that we can protect ourselves. But I think being the commodities over to the next couple of years are going to be -- it's going to be slowly increasing and those increases are going to stick.

And, Floyd, are there any categories that I've missed in terms of doors or windows or other components for the home where you are seeing price increases that are sticking?

We have seen people attempt to increase prices.

But nothing has been sticking?

But as builders say to us, "We accept no increases," except where they have no alternative. We say the same thing. And we've had to be very, very tough on it. I know people need increases out there just the same way as we do, but we have to do whatever we have to do in order to protect ourselves with our customer base. And our customer base has said pretty much no to any increases, and I also have to say that I understand where they are coming from. They are under tremendous pressures to hold their costs in line so that they can compete with a lot of the problem inventory that's out there. And it's still a very, very tough world out there.

And we'll now go to Jack Kasprzak with BB&T.

A few of my questions were asked, but I wanted to ask you about the competitive landscape, Floyd. I mean, what are you seeing out there, if anything, in the way of further closures by your competitors? Or do you think the environment still hasn't stabilized after such a brutal downturn? I mean, obviously, this is something that's probably going to help you guys being able to take some shares, some turmoil out there on the customer base -- competitor base, rather.

Jack, we are still seeing some closures and consolidations by some of our competitors. We have not had to do so. The -- I think it is beginning to stabilize, but I think this may just be a lull before the storm. I think there are a lot of people out there -- it is my feeling there are a number of competitors out there where working capital, liquidity, is extremely tight. And the -- as you know, there probably have been as many people who failed during real -- the real upturn as what they do in a downturn. And I think there's -- I think we're going to see some more capacity being pulled out of this industry because very frankly, there's still more capacity there than what there is demand to support it. So -- but the -- if we have a year where the building level is somewhere in the 470, 480, that's about where it was in 2010, and there were people who had a difficult time making it in 2010. They're going to have even a more difficult time making it under that scenario. And then when you start putting an increasing and improving market on top of it, I think there's going to be some more shakeout to come.

Okay. And I think you just mentioned, Floyd, that mills are...

And I will also say, Jack, we are going to do our very best to help see to it that some of those people do exit the market. And we're going to beat them on every count. We're going to beat them with service, quality of our people and the competitiveness of our pricing.

With regard to the mills, you mentioned they were near full capacity. I'm less familiar with that dynamic. But I mean, are there still mills that are shuttered that could come online? Or is it a situation where you think because the downturn has been so brutal, they'll be happier operating what they've got open now to full capacity without bringing on idle capacity?

There are mills out there that can be reopened. But I think that the -- I think that those companies are going to be very reluctant to do so. They are going to -- I think they're going to use this opportunity to really get the pricing levels back up to where it is a more acceptable pricing level over the long term. I don't really think that the mills are going to go out there to see what they can do and gut everybody just because they can do it. I think, though, that what they're going to do is get the prices up where it's a more responsible level, where it works for everybody in the system and over a longer period of time, and then they will slowly add capacity as they need to in order to keep those prices at a respectable level.

[Operator Instructions] We'll now go to Sean Boyd with Westcliff Capital Management.

One clarification. Most of my questions have been answered. Earlier, in a response to another question, you made a point about gross margins improving, I think it was 390 bps year-over-year in the fourth quarter. And I don't know if that's just on component cost, but to be frank with you, I'm looking at 19.1% going to 20.4%. So can you just verify with your...

That was on the component side of the business.

Okay. So basically on just components your gross margin is up almost 4 percentage points year-over-year?

That's -- I mean for fourth quarter to fourth quarter, yes.

And help me again on what -- is that due to the opportunistic inventory buys? What's really driving that?

That's a combination of good inventory buys. It's a combination of fixed cost absorption. It's a combination of improved labor efficiencies and in the COGS side, the manufacturing side of the business. And it's also a reflection of slightly improved pricing.

Okay. And, Floyd, what do you -- do you see additional headroom this year on that? Could you put another couple of hundred basis points on top of where we are at this point? Or how do you look at that?

I would really hope so. That's our intention to do so. It is an engineered product. It's a true value-add product. And the margins that we're still getting are nowhere near reflective of what they should be for this type product. But that's -- you almost nailed it on the head as to what our anticipation is this year.

And just one other, if I may. On the opportunistic inventory buys, how often do those come along? Is that something where you've just been capital constrained in the past and therefore you couldn't do it, but -- and you had to pass? Or are those something that -- you only see those opportunities a couple of times a year anyhow?

So we -- the -- it is only going to occur a limited number of times during the year. A lot of it is -- as you know, we do a lot of forward pricing. Probably 60% of our business is either 60- or 90-day forward pricing. The -- and if we feel that the market conditions for that coverage period is going to be real volatile, meaning -- and especially towards the upside, then we are going to look and see about what -- how we can go about protecting the pricing we have in place to ensure that we get through that quarter without major hits to our margins. And so we will step in and look at the markets and see over and over a period of whatever time that we feel it's going to take, we will be -- again, buying that coverage and getting that protection. And that's -- that doesn't happen all the time. If we see that the market is going to be relatively stable, then we don't need to do that. And we'll always look for those small incremental buys that we can do at a real discount to market just to get the slight improvement in our average cost that we have on materials and inventory. So that goes on all the time but that's a relatively small piece of the replenishment.

And if there are no further questions I'll turn the conference back over to Mr. Sherman for any additional or closing remarks.

Okay. Well, we really appreciate your interest in the company and joining us on the call today. If there are any further questions or anything you want to discuss, don't hesitate to call Chad or myself. We'll be glad to see what we can do to answer your questions.

Thank you. This concludes today's presentation. Thank you for your participation.